In a move that surprises nobody, democrat lawmakers in California are unable to understand the difference between margins and gross/net.
If somebody is making a 3% margin this means that for every $100 dollars of purchases they will net $3. The price of a good is normally set by evaluating the cost of the good plus the cost of services and facilities to deliver it.
Again, our nice $100 item. The cost of the good is how much was paid for that item. I.e. the person selling it bought 10 for $500 setting the base cost at $50/unit. There is the cost of shipping. The cost of the store itself (taxes, rent/mortgage). The cost of utilities to keep the lights and heat on. The cost of the communications and marketing. Cost of upkeep on the building and warehouses. Cost of equipment. And then the big one, labor costs.
Labor includes paying for every person that is employed. This includes everybody from the guy that cleans the floor to the CEO trying to keep his business afloat. And that adds up.
So with a 3% margin, the cost of the good is $50 + $47 leaving $3 in profit.
That profit goes to everybody that owns a part of the company and to all improvements to the company, research, development and so forth.
The problem that has happened is that the cost of the good has gone up. It is no longer $50, it is $125. Expenses have gone up, it is no longer $47, it is $80. The total cost of the goods is now $205. The company still wants its 3% so the price of the good is set at $211.
Now we have the math. Our company is sill making a 3% net on that good, but instead of taking in $3 they are taking in $6.
Multiply this by thousands of sales and the net is way up. Even though the margin has stayed the same.
With California drivers paying more than $6 for a gallon of gas and state officials deadlocked for months over how to provide relief, lawmakers in the state Assembly on Monday announced they would investigate oil companies they say are “abusing a historic situation to suck profits from Californians’ wallets.”
—California Democrats to investigate cause of high gas prices
There is no ability to look at root causes. For a democrat every problem is always greed and somebody else. They have no sense of responsibility.
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5 responses to “Fox in the Hen House: Dems Investigating Gas Prices”
“Labor includes paying for every person that is employed. This includes everybody from the guy that cleans the floor to the CEO trying to keep his business afloat. And that adds up.”
Don’t forget, labor costs to the business also include costs for vacation and sick time, taxes and SSI, overhead and administrative costs, as well as benefits. A $15/hr employee is likely costing the company $25-$30 per hour when all is totaled up. And that ratio does not change significantly when wages go up. Pushing up minimum wage also pushes up the ancillary costs as well.
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“There is no ability to look at root causes. For a democrat every problem is always greed and somebody else. They have no sense of responsibility.”
Much like talking with a toddler, they have it figured out, and you are wrong. It is greed because that is what their heart/feelings/emotions tells them it is. Facts will not change that attitude.
California did this last time gas prices went up. And the time before that too. And the time before that too …
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The Token CA Republican should move to enter all the previous “Get the Oil Companies” committee records in the new committee’s record. Then quote the Democrat Morons’ previous words in his/her opening statement to discredit the Democrat Morons now.
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On the first day, move to end and disband the committee as useless, ineffective and duplicative.
There’s a reason why politicians like inflation: it makes all the numbers go up without any effort on their part. In my view, the reason the Fed aims for 2% inflation is that this is the highest number that politicians can get away with long-term.
An economy run with real money does not experience inflation; instead, since on average productivity goes up, prices gradually come down. In other words, slight deflation. Ludwig von Mises explained this in detail.
Of course there is a notion in current political economics that “deflation is bad”. This is very narrowly true: if caused by stupid politicians and running at high speed, it’s bad just as politician-induced inflation is. But natural deflation due to productivity improvement is not only harmless but beneficial. You can see this at work in the world of high tech: computers have been subject to deflation (and quite rapid deflation at that, but all organic) ever since they were invented.
I find it amusing, how often the Dems flip between “you are evil because [insert reason here]” and “please produce more [insert commodity here] because we don’t have enough and people are complaining.” Or, rather, I would if it weren’t so damaging.
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If I were an oil company exec I would be strongly tempted to simply decline to participate; there’s literally no way they can win with these people, or even come out unblemished. Better to let them rage in their impotence, perhaps.
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And, the Dems do this not to just companies, but countries … remember Biden saying he wanted to ostracize the Saudis, and then begging them to produce more oil? Sheesh.
““Labor includes paying for every person that is employed.”
It has always amazed me how so few people in business understand “burden rate,” much less how to calculate it. Which varies by position, not just compensation rate, much to the great surprise of many.
And, if few people in business understand it, you can take it a given that no one in government does. In fact, good luck finding someone in government who has even heardof burden rate.